Hot Topics:

Business

Ergen not content to sit on sidelines with pay-TV

The EchoStar and Dish Network leader is making moves to contend with a shifting world of pay-TV.

By Andy Vuong The Denver Post

Posted:
02/20/2011 01:00:00 AM MST

Dish Network and EchoStar chairman Charlie Ergen may be a satellite-television pioneer, but these days, his children are wondering about his line of work.

"My kids think I'm crazy for being in the pay-TV business because they don't pay for TV," Ergen said during an earnings call with analysts in November, according to a transcript. "They don't pay for movies. But they watch an awful lot of TV and movies."

Those remarks were part of a long answer addressing whether the video business has changed.

With growing competition from cheaper Internet-based alternatives like Netflix, and as viewers look to access TV content while on the move, the landscape clearly has changed.

Ergen isn't sitting idle, adding features such as GoogleTV and Sling to enhance Dish's service. And in recent months, he has proposed multibillion-dollar moves that could reshape the satellite-TV company he co-founded three decades ago.

If successful, the deals would give Ergen control of a big block of wireless spectrum at a time when such frequencies are in short supply and high demand.

They also would make Dish an attractive acquisition target for telecom giants AT&T and Verizon Communications, according to analysts, because wireless carriers will need more spectrum as mobile broadband usage grows.

"Is it a purely financial investment, and he's just going to turn around and sell it over the next couple of years?" asked Bryan Kraft, an analyst with Evercore Partners in New York. "Or it is it an investment . . . he might be able to use in a partnership with a wireless operator to give him wholesale access to a wireless network on attractive terms?"

Ergen also may choose to build his own wireless network, though Kraft says that scenario is unlikely.

Ergen declined to comment for this story, with Dish spokesman Marc Lumpkin noting that EchoStar and Dish, both based in Douglas County, have not publicly discussed the proposed deals. Lumpkin said the companies are expected to do so during their quarterly earnings call Thursday.

Dish, the nation's No. 2 satellite-TV company with about 14 million subscribers, spun off from EchoStar in 2008. Echo Star makes TV set-top boxes and provides satellite services to businesses.

Ergen has said the split would increase the company's value and help fund expansions. He is the chairman of EchoStar and Dish and also serves as Dish's chief executive and president.

This month, Dish proposed to buy bankrupt satellite technology company DBSD North America for about $1 billion.

The deal is far from certain, as a third company has shown interest in DBSD, which owns a 20 megahertz block of wireless spectrum.

The spectrum comes with a requirement that a satellite component be integrated into any service that uses it. That means handsets using the airwaves must be able to communicate with satellites, not just land-based cell sites, making the spectrum less valuable.

But analysts believe the Federal Communications Commission will ultimately waive that requirement because of the limited spectrum available for mobile content.

"All the operators need more spectrum, and the government is trying to find ways to free up spectrum," Kraft said. "So it's quite possible that down the road, the satellite requirement associated with the spectrum becomes lifted."

Separately, Ergen, through EchoStar, has made a move for control of bankrupt TerreStar Networks, which also owns 20 MHz of spectrum.

Though the deal was mutually canceled for undisclosed reasons last week, EchoStar still maintains a stake in TerreStar and its parent company that was valued at $474 million last year, according to a regulatory filing. EchoStar has been an investor in TerreStar since 2008.

Gaining control of TerreStar and DBSD would give Ergen nearly as much spectrum as T-Mobile and Sprint, according to Walter Piecyk, an analyst with BTIG Research in New York.

"Ergen's aggregate spectrum position could provide an interesting bargaining chip with several different wireless operators given the expected rise in wireless data," Piecyk wrote in a Feb. 2 research note. "Dish's new spectrum also make it a more attractive acquisition target of Verizon and AT&T, who we believe will need more spectrum over time and who could use some out-of-market video services to bundle with their mobile voice offerings."

To put TerreStar's and DBSD's 20 MHz blocks in perspective, Verizon and AT&T each own about 90 MHz of spectrum, according to Piecyk.

TerreStar's and DBSD's spectrums, though, are located in the less-attractive 2.0 gigahertz band. AT&T and Verizon are building 4G Long Term Evolution wireless networks on the 700 MHz band.

Signals at the lower 700 MHz frequency can penetrate buildings more easily and travel farther without degrading. Dish already owns a block of spectrum on the 700 MHz band.

Wunderlich Securities analyst Matthew Harrigan said last week that he doesn't think an AT&T acquisition of Dish and EchoStar is likely because of another deal that's on Ergen's plate. EchoStar announced plans Monday to acquire Hughes Communications for about $2 billion.

"Charlie wouldn't be making that type of move if he was about to sell," Harrigan said.

"The service is generally targeted toward rural areas where cable modems are not available," said Lawrence Harris, analyst CL King & Associates in New York.

Though broadband satellite service is slower and costlier than wireline service, Hughes plans to launch a second satellite next year that could boost speeds, Harris said.

Hughes also makes satellite terminals that gas stations and retailers use to transmit information about sales transactions and other data, a mature but profitable business.

"There are advantages in terms of combining the manufacturing businesses of Echo Star and Hughes," Harris said. "And there could be advantages in terms of the joint marketing" of Dish's satellite-TV and Hughes broadband services.

Missy Franklin, Jenny Simpson, Adeline Gray and three other Colorado women could be big players at the 2016 Rio OlympicsWhen people ask Missy Franklin for her thoughts about the Summer Olympics that will begin a year from Wednesday in Rio de Janeiro, she hangs a warning label on her answer.